Tesla, Inc. released mixed financial results for the second quarter. Earnings missed expectations, both on the top and bottom line. Such a dismal performance comes amid a tumultuous period for the maker of electric cars. Recently, its stock has dropped 8% and is down a total of roughly 25% this year, reflecting this conundrum.
Even with these hurdles, Tesla’s digital assets are currently valued at $1.24 billion. That’s an incredible leap from only $722 million last year! The company said it plans to exchange the majority of its bitcoin holdings into cash. The next question is, what’s the strategic direction of this move. In early 2021, Tesla made headlines when it announced a $1.5 billion investment in bitcoin. The company referenced the cryptocurrency’s “long-term potential” as a strategic decision to diversify and minimize risk while maximizing returns on its cash.
When March 2022 rolled around and inflation had made its presence felt, Tesla started selling off its bitcoin stockpile. That’s because by cashing out $936 million worth of bitcoin during this time, the company actually realized huge gains. If they had simply converted that bitcoin to cash, it would be worth more than $3.5 billion now, exposing a huge blunder in its original investment strategy. This past second quarter, Bitcoin gains were a staggering $284 million. At the same time, Tesla achieved an overall net income of $1.17 billion.
Okay, so bitcoin had a brutal 2022 when it fell by 60% at its lows. As of this writing, the cryptocurrency trades above $119,000. It has increased six times since the Trump administration’s favorable regulatory changes started taking effect at the end of the 2nd quarter in 2022.
Elon Musk has been an impassioned promoter of cryptocurrencies. As he took office in January 2021, he changed his Twitter bio to include #bitcoin, sending the price of the currency soaring. He expressed his intention to hold onto his investments, stating, “I still own & won’t sell my Bitcoin, Ethereum or Doge fwiw.” Tesla’s move to dump the bulk of its bitcoin holdings shocks analysts and investors. This move is particularly striking in light of the company’s CEO’s personal investments in these assets.
Keith Fitz-Gerald, a financial analyst, remarked on Tesla’s evolving identity: “Calling Tesla a car company is overrated.” This pronouncement underscores the familiar refrain of Tesla’s pernicious effect on both technology and finance. It’s indicative of how Tesla is trying to embrace the spirit—and challenges—of investing in digital assets.
The EV maker’s market capitalization took a huge hit through 2022, shedding more than 2/3 of its market capitalization. This increase in the share price has increased the pressure on the company to show strong financial performance in a volatile market. Tesla is encountering some major headwinds, which are outlined here. This requires it to rethink its approach to digital tokens and other digital assets, and how these investments fit in the overall long-term business objectives.